Abstract
It is often asserted that stock splits and stock dividends are purely cosmetic events.
However, many studies have documented several stock market effects associated with
stock splits and stock dividends. This paper examines the effects of these two types
of events for the Danish stock market. Consistent with the existing literature, the
two events are associated with a significantly positive announcement effect of ap-
proximately 2.5%. However, when examining the two events more carefully, several
important results are obtained. First, a firm's motivation for announcing the two
events is completely different. Second, the positive stock market reaction is closely
related to associated changes in a firm's payout policy, but the relationship varies for
the two types of events. Finally, there is only very weak evidence for a change in the
liquidity of the stock. On the whole, after controlling for the firm's payout policy,
the results suggest that a stock split is a cosmetic event and that a stock dividend
on its own is considered negative news.
Key words: Stock splits; Stock dividends; Cash dividends; Signaling; Liquidity

New accounting standards require ¯rms to expense the costs of option-based compensation (OBC), but the associated valuations o®er many challenges for ¯rms. Earlier research has documented that ¯rms in the U.S. generally underreport the values of OBC by manipulating the inputs used for valuation purposes. This paper examines the values of OBC disclosed by Danish ¯rms. The results suggest that ¯rms experi ence some di±culties in valuing OBC, but interestingly, there is no clear evidence of deliberate underreporting. For example, there is no evidence that ¯rms use manipulated values for the Black-Scholes parameters in their valuations. Furthermore, ¯rms determine the expected time to maturity in a way that is generally consistent with the guidelines provided by the new accounting standards. The ¯ndings di®er from those of the U.S., but is consistent with the more limited use of OBC and the lower level of attention paid to these values in Denmark. However, the di®erences can also be due to the fact that several Danish ¯rms do not provide the information required regarding their OBC, which is clearly a very e®ective way of hiding the true values.

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Construction and information content of an investor-cost based rating of Danish mutual funds

Bechmann, Ken L.; Rangvid, Jesper(København, 2005)

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Resume:

We develop a new rating of mutual funds: the atpRating. The atpRating assigns crowns to each individual mutual fund based upon the costs an investor pays when investing in the fund in relation to what it would cost to invest in the fund’s peers. Within each investment category, the rating assigns five crowns to funds with the lowest costs and one crown to funds with the highest costs. We investigate the ability of the atpRating to predict the future performance of a fund. We find that an investor who has invested in the funds with the lowest costs within an investment category would have obtained an annual risk-adjusted excess return that is approximately 3-4 percentage points higher per annum than if the funds with the highest costs had been invested in. We compare the atpRating with the Morningstar Rating. We show that one reason why the atpRating and the Morningstar Rating contain different information is that the returns Morningstar uses as inputs when rating funds are highly volatile whereas the costs the atpRating uses as inputs when rating funds are highly persistent. In other words, a fund that has low costs one year will most likely also have low costs the following year, whereas the return of a fund in a certain year generally contains only little information about the future return that the fund will generate. Finally, we have information on the investments in different mutual funds made by a small subgroup of investors known to have been exposed to both the atpRating and the Morningstar Rating, i.e. information is provided on how investors use the two ratings. We find that investors have a clear preference for high-rated funds.

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Firms pay out cash using both dividends and share repurchases. In many aspects these two
means are similar, but one important difference is that dividends are generally taxed more heavily than share repurchases. Nevertheless firms persist in paying out large amounts in dividends. This paper provides an explanation for this dividend puzzle by developing a class of signaling models violating the "single-crossing" property in which information about the quality of the firm is asymmetric between the management and the shareholders. In these models a high-quality firm can always signal its quality by using share repurchases only. However, in certain cases share repurchases become costlier on the margin for a high-quality firm than for a low-quality imitator. In such cases, the high-quality firm signals most cost efficiently by means of a combination of share repurchases and taxable cash dividends financed by the issuance of new shares. Taxable cash dividends financed by the issuance of new shares then can be considered a positive kind of money burning whose role is to signal a firm’s high quality. The implications of the models are consistent with several important empirical facts about dividends and share repurchases. Thus, this paper’s main contribution is to examine a range of new signaling models that provides a role for taxable cash dividends and share repurchases and to derive their empirical implications.
Key words: Dividends, Share Repurchases, Signaling, Single-Crossing Property, Money Burning
JEL Classification: G35, D82

Abstract
Over the last decade the Danish corporate environment has experienced a significant increase in
the use of option-based compensation (OBC). This and many other facts are documented in the present
paper which provides the first insights into the characteristics of the option and warrant contracts issued
by the complete sample of Danish companies listed on the Copenhagen Stock Exchange.
A newly constructed database containing all publicly available information on details of Danish
OBC contracts allows us to present, for example, results regarding contract values at an aggregated as
well as at firm, personnel group, and individual level. The paper also contains a section which discusses
and presents evidence on the incentive effects provided by the option-based compensation contracts
adopted by Danish listed companies.